The Nest

NestApple's Real Estate Blog

Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.

Deadlines in real estate transaction in New York: Coop. Board Packages & Commitment Letters

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A buyer (for purposes of this article, let’s call her Sally Streetwise) works with her broker to find a property she loves in a beautiful coop. The brokers work with the buyer and the seller to reach an agreement on the key deal points. The brokers can then turn the delicate deal over to the lawyers to conduct due diligence. Attorneys also negotiate the more formal contract terms. After much back and forth between lawyers and clients, the contract gets finalized. The buyer signs the contract and submits her deposit check. The seller’s attorney deposits the check to an escrow account. Then, the contract becomes fully executed. From that minute, it’s essential to keep in mind all the deadlines, including the commitment letter and Board Package in this real estate transaction management in NYC.

real estate transaction managementYou might think this would be a great point in time for the brokers, lawyers, buyers, and sellers to take a collective sigh of relief. Can they pat themselves on the backs and look forward to a smooth closing? Alas, there is no rest for the weary in Manhattan real estate. With the finalization of the contract comes something lawyers and brokers deal with every day of their careers. But something first-time buyers like Sally Streetwise may not yet be fully prepared: DEADLINES and the pitfalls for missing them.

signing a contract - commitment letterThe New York residential real estate contract will not satisfy itself with only one deadline.

There must be multiple deadlines, as many deadlines as subway lines (or double-parked cars) in Manhattan. There are deadlines:

  1. to apply for mortgages
  2. and to obtain Commitment Letters
  3. to submit board packages
  4. for providing notices
  5. to schedule closings
  6. to adjourn closings
  7. and deadlines that increase stress and confuse everyone throughout the process.

Some lawyers, bankers, and brokers push forward as quickly as possible, hoping to avoid any deadline land mines. However, experienced practitioners will help the buyer navigate deadlines to lessen their stress and protect their best interests.

paper trail in new york - Board Package

The board package submission deadline and the Loan Commitment Letter deadline

Let’s get acquainted with two of the most critical deadlines our buyer will encounter once she gets into contract: the board package submission deadline and the Loan Commitment Letter deadline (“Commitment Date”). 

In the typical contract for the purchase of a cooperative unit, the answer is clear. Sally Streetwise has ten business days to submit her board package. Unless she has three business days. But remember that the three-business-day deadline begins to run at the expiration of an entirely different thirty or forty-five-calendar-day Commitment Date. Or it begins to run sooner. Let’s break that down a little bit further to clear up this confusion. One commonly used contract contains multiple deadlines for the submission of the board package. They depend on various circumstances that might exist:

  1. If Sally Streetwise is not seeking financing

    If buying “all cash,” she needs to submit her board package within ten business days of her attorney’s receipt of a fully executed contract.

  2. but if Sally is seeking financing in her real estate transaction

    The board package deadline’s determining factor will be whether a commitment letter is required to get submitted with her board package.

    1. Suppose the board does not require a commitment letter as part of the board package. Then the original ten-business-day deadline is still in effect. However, most boards do require a commitment letter. Most boards believe that if a buyer cannot obtain a commitment letter, the deal will not go forward. There would be no point in wasting time reviewing the application.
    2. If the board requires a commitment letter as part of the board package. Then the contract will include the Commitment Date of usually thirty or forty-five days from the date Sally’s attorney receives a fully executed contract. Sally’s board package deadline also then hinges on whether her contract has a Commitment Letter contingency.
      1. If Sally’s contract has a Commitment Letter contingency, her deadline is three business days from the earlier when she receives the Commitment Letter or the Commitment Date.
      2. If, on the other hand, Sally is seeking financing, but her real estate transaction does not include a Commitment Letter contingency. Then Sally’s deadline is three business days from the earlier of:
        1. When she receives the Commitment Letter.
        2. The Commitment Date.
        3. There is one crucial caveat. Even if Sally has not obtained a Commitment Letter by the Commitment Date, she must still submit her board package within three business days from the Commitment Date.

Your broker’s help to navigate through deadlines in real estate transaction in NYC

We always recommend that a buyer obtain a copy of the board application before entering into the contract with her broker’s assistance. This way, they will know ahead of time whether the board requires the commitment letter. The broker and the buyer should work together to get the board package as complete as possible. As a result, the only open item remaining while approaching the Commitment Date will be the lender’s issuance of a Commitment Letter.

coop application due: Deadlines in real estate transaction management in NYC - commitment letter - Board Package

When facing a deadline, there’s often an impulse to hurry up and beat the deadline by as many days as you can. However, in the context of the Commitment Date and board package deadline, this is not necessarily the best path forward. Once parties are in contract, Sally Streetwise should start working on her loan with her banker and the broker’s board package. Both are not to beat the deadlines but rather meet the deadlines with the best work product possible within the time permitted.

real estate transaction management - Board PackageFor bankers working on the commitment letter

Several open conditions may initially exist in the commitment letter. The banker should work with the client to eliminate as many open conditions as possible before the Commitment Date. For example, a banker states that Sally Streetwise’s parents must provide a “gift letter.” It would be best to obtain the gift letter and have that condition cleared from the commitment letter, rather than having the commitment letter issued with the open condition. What if Sally’s parents refuse to sign a “gift letter” for the funds they provided her? We need to discover these potential issues while in the contingency period rather than after the contingency has lapsed.

It is also critical to have an experienced banker.

You need a banker familiar with the interplay of the Commitment Date and the board package timeframes. Less experienced bankers may issue a commitment letter quickly in an apparent effort to impress the borrower. But inadvertently, they trigger the 3-day deadline described above when the borrower is not yet ready to submit the board package. Sally Streetwise will want to have an open dialogue with both her banker and her broker.  This way, they take the time to prepare a board package that shows Sally in the best light. Sometimes this means waiting until the most recent bank statements are available from the buyer’s bank or waiting until the perfect source of a professional reference returns from vacation.

There is one notable exception to the above.

What should Sally do when she obtains a commitment letter that is still subject to a satisfactory appraisal. But the appraisal has not yet been conducted or approved by the bank? In such a case, the typical real estate contract states that a commitment letter subject to an appraisal is not a “Commitment Letter” as defined in the contract. Unless and until the appraisal condition is satisfied. The first goal would be to ensure the appraisal is satisfied before sending the Commitment Letter as part of the board package.

However, there are times that the broker will want to submit the board package quickly, for example, to make the next board meeting deadline. And so they would prefer to submit the commitment letter with the appraisal condition. In such a case, the buyer may decide to provide the commitment letter even though it is still subject to an appraisal. However, the buyer should state that it is a preliminary commitment letter with their right to cancel still intact under the standard commitment letter contingency clause.

One final note on deadline extensions in real estate transactions

Buyers should take note that in the world of contract law for a real estate transaction, there is a difference between:

  • a deadline where a buyer receives a right of action
  • a deadline where a buyer has no such right.

For example, take the case where a buyer with a finance contingency has done her best to cooperate with the bank to obtain a commitment letter. Still, through no fault of her own, the bank cannot issue the commitment letter before the typical thirty-day deadline. In such a case, the buyer would potentially have the right to cancel the contract. A buyer could request from the seller an extension of that deadline instead of exercising the right of cancellation. This wielding of the implied power to cancel often results in the seller granting an extension.

real estate deals - commitment letterContrast this situation with the deadline to submit a board package. Here, in normal circumstances, the buyer does not have a right to cancel if the board package is not submitted on time. Therefore the buyer may not be successful in seeking an extension of such a time. Requesting an extension in such a circumstance comes with risk. If the seller disagrees (and there is no requirement that they do), the buyer must rush to submit the board package or risk becoming in breach of the contract, potentially subjecting the buyer to the deposit’s loss. If a broker or client is concerned with the board package submission deadline, the most effective time to address this concern is during the contract negotiation stage. Attorneys can add additional time to the contract.

 

Disclaimer

Due to the complex interplay of deadlines described herein, a buyer must work with seasoned professionals when selecting a lawyer, broker, and banker. Each of these professionals works with the others to ensure that the deadlines are adequately met and with information that puts the buyer in the best possible position to succeed in the real estate transaction.



Georges Benoliel Founder of NestApple - NestApple NYC cashback rebate

Georges Benoliel

Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.